Deriving ROI From RFID: Lessons from Bentonville

Donna M. Schaeffer, PhD
Associate Professor, Marymount University, School of Business
2807 N. Glebe Road, Arlington VA 22207
donna.schaeffer@marymount.edu
703-284-5718

Patrick C. Olson, PhD
Consultant, AWARE
3313 Casa de Campo Building D, Suite 203 San Mateo, CA 94403
dr.o@aware.vg



Globalization

"A billion hours ago, human life appeared on earth.
A billion minutes ago, Christianity emerged.
A billion seconds ago, the Beatles changed music.
A billion Coca-Colas ago was yesterday morning."
Robert Goizueta, Late President of Coca-Cola, 2001.

Supply Chain


"The Supply Chain comprises the network of retailers, distributors, transporters, storage facilities and suppliers that participate in the sale, delivery and production of a particular product." Investorwords.com, 2006

RFID


Radio Frequency Identification. Radio Frequency Identification (RFID) is a way to collect data via a wireless system.
The system uses electronic tags (transponders) that store links to data in databases, an antenna that emits radio signals, and a transceiver that reads the tags via a radio signal.
The emitted radio signals travel in range from one inch to 100 feet or more, depending upon the signal's power & the radio frequency used.
When an RFID tag passes through this zone, it is activated. Data is transmitted, decoded, and passed to the host computer for processing.

Return on Investment


Return on Investment. Return on Investment (ROI) is one of the most commonly used profit ratios. It measures the profit earned on the capital invested (Hill and Jones, 2007). For a SCM project, it would be calculated by subtracting the total costs of implementing and operating the system from the total benefits derived from the project. This amount is divided by the amount invested in the project.
ROI provides a good measure of how much value the system has created.



Deriving ROI from RFID

Fearon, Flynn, and Johnson (2002) established nine major objectives of supply management:
  1. To provide an uninterrupted flow of materials, supplies and services required to operate the organization
  2. Minimize inventory investment and loss
  3. Maintain and improve quality
  4. Create relationships with competent suppliers
  5. Set standards for suppliers
  6. Get supplies and services at lowest cost
  7. Achieve harmonious, productive working relationships with other departments
  8. Keep purchasing administrative costs low
  9. Improve the organization's competitive position



Lessons from Bentonville:



(Source: Porter, 1980)



Examples:




(Source: Cadbury-Schweppes Media Center)

Cadbury Schweppes reduced supply costs 5% per year.

Dannon reduced risks from releasing yogurt either too early or too late.

(Source: Newsday)

(Source: Kleenex Image Gallery)

Kimberly Clark was the first mover in adopting RFID.

World Kitchen has reached a level of 99.7% accuracy in its inventory management.

(Source: World Kitchen Product Gallery)

(Factory in China)

Del Monte advanced the RFID industry by finding ways to make RFID signals work with viscous products in metal containers with a lot of machinery around!

Heinz illustrates the importance of integrating the RFID with other organizational systems.

(Source: Heinz History of Advertising Gallery)


Building a Concept of Operations:
  1. Collecting and cataloging documents used
  2. Describing the current situation
  3. Listing the nature of proposed change including justification
  4. Describing the proposed system
  5. Preparing operations scenarios for proposed system
  6. Assessing organizational impacts
  7. Generating alternatives and listing trade-offs



Measuring ROI?